Beijing's brakes are not working, says IMF

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China has not been able to moderate its rapid economic growth
despite the world's most populous nation taking a series of steps
to slow down, the International Monetary Fund said.

Australia, whose commodities such as iron ore and coal are
enjoying boom prices on surging Chinese demand, is among countries
anxious to see China's growth continue - but at sustainable
levels.

Last year, the Chinese authorities made several moves, largely
in the form of administrative controls, to moderate the pace of
economic growth, which has been a blistering average of 9.7 per
cent a year from 1990 to 2003.

The controls included bank lending, but in late October Beijing
also announced a modest rise in interest rates.

"There have not been clear signs of growth moderating to a level
that can safely be viewed as sustainable," IMF first deputy
managing director Anne Krueger said at a conference in Washington
on Monday.

In the third quarter of last year, she said, China's growth
picked up in fixed investment, industrial production and retail
sales and "there continue to be bottlenecks, especially in the
energy and transport sectors".

"It is therefore too soon to be confident that the much
talked-about soft landing has, as yet, been successfully
engineered," she told the conference, organised by the American
Enterprise Institute for Public Policy Research.

But Ms Krueger said fears of a hard landing for the Chinese
economy tended to be overdone, adding that its impact on neighbours
was likely to be less than many have suggested.

Beyond Asia, a hard landing in China would have only a small
impact, she said.

"The impact for some Asian economies might be significant. But
such a shock should be manageable, given the fairly robust outlook
for the region as a whole," she said, citing an assessment
conducted by the IMF last year.

Ms Krueger said the study showed that a decline in investment
growth of of 5.5 percentage points in China would lead over time to
a 4 percentage point dip in gross domestic product and a 10 per
cent drop in imports for the rest of Asia.

Investment is a critical benchmark for China because it accounts
for 40 per cent of its GDP.

Ms Krueger said the assessment showed that such a relatively
sharp fall in regional imports would have a relatively small
short-term impact, reducing world GDP by perhaps 0.33 per cent in
the first year.

That figure might rise to 0.75 per cent after several years,
with most of the longer-term impact in Asia and the bulk in China
itself, she added.

Ms Krueger said the United States and the European Union were
still important export markets for Asian economies.

She also said that a substantial drop in the growth of exports
to China would still leave countries in the region with relatively
robust export growth rates provided that growth momentum in
industrial markets was sustained in the US and gradually improved
in Europe.

In spite of recent rapid growth, trade shares with China are
lower for countries outside of Asia.

Ms Krueger felt that in attempting to moderate growth, China's
policy makers would respond promptly to any sign of a dramatic
slowdown.

"It is difficult to imagine that any drop in growth would be
sustained for more than a quarter or two without a response from
the authorities," she said.

"So though a hard landing cannot yet be ruled out, the
consequences may be less dramatic than most commentators have
argued."

Ms Krueger touched on the hotly debated issue of China's shift
to a floating exchange rate regime, saying it was essential that
greater flexibility be accompanied by readiness to tackle
structural problems in the banking system.

But in spite of moves to reform the banking system,
non-performing loans remained a problem, she noted.

"Good progress has already been made on bank restructuring and
reform," she said.